Federal Trade Commission
Protecting America's Consumers
Overview of the FTC/DOJ Clearance Agreement
Both the Federal Trade Commission (FTC) and the Department of Justice's Antitrust Division (DOJ) have jurisdiction to review proposed mergers and other competitio\n issues. To avoid duplication, the age ncies must decide which one will investigate. For mergers, under 15 U.S.C. §18a, only one of the two agencies can conduct a detailed investigation.
Since 1948, the agencies have agreed that neither would proceed until the other "cleared" the investigation to it. For most of its history, this process has worked well, because it was based primarily on the relative expertise of the respective agencies. Thus, because the FTC had experience with automobiles, it conducted investigations in that industry; similarly, DOJ investigated steel matters. The process, however, was non-transparent; that is, the allocations of industries between the agencies were never formally disclosed to the public.
In recent years, the process has become more contentious as the convergence of industries has blurred bright lines between industry boundaries. For example, because the DOJ historically has investigated electricity, while the FTC has investigated all other energy matters, convergence mergers between electricity and natural gas companies have led to contentious disputes regarding which agency should investigate. Moreover, although the FTC predominantly has investigated computer hardware and the DOJ has investigated computer software, matters involving both have become increasingly common, resulting in clearance disputes.
In the 1980s, there were only about 10 disputes per year. Since then, the average has exceeded 80. These disputes result in significant delays. Delays averaging three weeks occurred in 24 percent of the matters on which clearance was sought from the beginning of FY 2000 through January 28, 2002. Cumulatively, these investigations were delayed by 4,521 business days -- more than 17 years. During this time, neither agency could investigate potentially serious allegations of illegal behavior.
The process had so deteriorated that when the new heads of the agencies arrived last summer, one investigation had been delayed over a year because neither agency would "clear" it to the other. The new officials quickly resolved this matter, and determined to try to reach a global clearance agreement. Their immediate predecessors, Bob Pitofsky of the FTC and Joel Klein of the DOJ, had attempted to negotiate such an agreement for over one year, but could not reach consensus.
Another inefficiency of the old process resulted from the fact that by dividing matters within a given industry between the two agencies, one agency could not study the full array of related matters in that industry, and thereby maximize the breadth and depth of its expertise. For example, instead of splitting cars and trucks between the two agencies, under the agreement a single agency will be able to examine and develop expertise in the entire field. Similarly, consolidating energy expertise in one agency is more efficient and effective than continuing to divide electricity and natural gas between the two agencies. Consolidating media expertise in the agency with greater media experience similarly will be more efficient and effective.
On January 17, 2002, the agencies cancelled their plans to announce a new clearance agreement because of questions Senator Hollings raised. On March 5, 2002, after extensive discussions with the Senator's staff, the agencies implemented their new agreement. The agreement would avoid almost all of the delays of the previous system, provide the public with a transparent understanding of how industries would be allocated, and allow for expertise to be developed as fully as possible. The allocations in the draft clearance agreement were developed based on three criteria: prior expertise; the benefit of one agency evaluating all segments within a specific industry; and an effort to divide matters between the agencies evenly.
In addition to the allocation of industries, the proposed agreement also improves the overall transparency of the process and institutes specific procedures for possible disputes. The agreement sets forth expedited time frames for review, provides for the development of a clearance manual that will be posted on each agency's web site, and establishes a dispute process involving a neutral evaluator for clearance resolution.
The agreement enjoys widespread support. Several Members of Congress, including Congressman Sensenbrenner, and Senators DeWine, Hatch, and Kohl, have publicly endorsed the agreement. Eleven former heads of the antitrust agencies, from the last four presidential administrations, have expressed public support, as have many business groups.
Senator Hollings and some consumer groups have voiced opposition. Their main concern is that they would prefer the FTC to investigate media mergers. Although the FTC did investigate AOL/Time-Warner, the DOJ has far greater experience in such mergers. Moreover, the DOJ has exclusive experience in telecommunications, and telecommunications companies are becoming increasingly prominent in the media area. Although Senator Hollings and the consumer groups would prefer the FTC to investigate more of these matters, under the preexisting clearance procedures, the DOJ would have obtained clearance in these cases.
Because the agencies no longer would fight over specific industries and because he wants the FTC to investigate media mergers, Senator Hollings has publicly claimed that this is an "illegal restructuring." This agreement is not an illegal reprogramming under Appropriations Law, as it does not involve reorganization or termination or creation of new programs, projects, or activities, as that term is legally defined. On a practical basis, the agreement does not change which agency will investigate media mergers, the only area about which the Senator has objected.
Links associated with FTC/DOJ Clearance Agreement:
Memorandum of Agreement Between the Federal Trade Commission and the Antitrust Division of the United States Department of Justice Concerning Clearance Procedures for Investigations [PDF 126K]http://ftcgov.ftc.gov/opa/2002/02/clearance/ftcdojagree.pdf
Letter from Senators Herb Kohl and Mike DeWine [PDF 109K]
http://ftcgov.ftc.gov/opa/2002/03/clearance/kohldewine.pdf
Letter from Former Antitrust Enforcement Officials [PDF 774KB]
http://ftcgov.ftc.gov/opa/2002/02/clearance/multiletters.pdf
ABA Antitrust Section Letter [PDF 128KB]
http://ftcgov.ftc.gov/opa/2002/02/clearance/aba.pdfLetter from the Business Roundtable, the National Association of Manufacturers and the U.S. Chamber of Commerce [PDF 128KB]
http://ftcgov.ftc.gov/opa/2002/02/clearance/brt.pdfNumber of Enforcement Actions and Substantial Investigations by DOJ and FTC in the Telecommunications and Media & Entertainment Industries, FY1997-Present
http://ftcgov.ftc.gov/opa/2002/03/clearance/tme.htmNumber of Enforcement Actions and Substantial Investigations
by DOJ and FTC, by Industry, FY1997 - Present
http://ftcgov.ftc.gov/opa/2002/02/clearance/clearchart.htmClearance Delays
http://ftcgov.ftc.gov/opa/2002/02/clearance/cleardelaystats.htmInitial Recommendations
http://ftcgov.ftc.gov/opa/2002/02/clearance/clearideas.htm